Trinity Industries buys manufacturing sites

Dallas-based Trinity Industries, Inc. late Thursday announced it will purchase 665,000 square feet of heavy manufacturing capacity from DMI Industries, a subsidiary of Fargo, N.D.-based Otter Tail Corp., for $20 million. The facilities are located in West Fargo, N.D., Tulsa, Okla., and Fort Erie, Ontario.

The deal for the Fort Erie facility closed Friday, while Otter Tail said the West Fargo deal will close in November and Tulsa portion in December. Steve Barger, analyst at KeyBanc Capital Markets Inc., said the timing of all three portions is occurring in sequence "after DMI Industries completes its remaining wind tower orders."

"I am pleased with this opportunity to expand our manufacturing capacity at a very attractive valuation," Trinity Industries Chairman, President, and CEO Timothy R. Wallace said in a statement.

Said KeyBanc's Barger, "We think TRN is likely taking advantage of weakness in the wind tower industry to buy heavy manufacturing capacity with a favorable geographic footprint relative to higher growth energy markets. With respect to the $20 million purchase price, we note OTTR took a non-cash asset impairment charge of $45.6 million in its 2Q12 earnings release related to these facilities, which suggests to us that TRN was able to buy these facilities at very favorable terms.

"We do not expect that TRN intends to expand its own wind tower business given it is currently converting some of its own wind tower manufacturing capacity to support increased tank car production, and given our expectations that an extension of the Production Tax Credit is unlikely to occur before its expiration at the end of 2012," Barger said.

"Instead, we expect TRN intends to use these facilities to support the manufacturing of railcars, bulk storage facilities or highway products after making appropriate conversions. If these facilities allow TRN to substantially increase tank car production, we think it could serve as a solid earnings catalyst. That said, we also think TRN may view these facilities as favorable to manufacturing bulk storage containers for increasing volumes of oil and other liquids produced in the Williston Basin and other shale plays.

"Overall, we think this is a solid opportunistic purchase, which improves TRN's geographic flexibility, capacity and ability to serve higher growth energy markets," Barger said. "Looking further out, we think these facilities could also allow for the addition of new product lines or the elimination of older, less efficient capacity in other geographies."